A 15-year mortgage is the dream home loan for buyers who can afford higher monthly payments and want to pay off their mortgage in half the usual time. A 15-year timeline can save thousands or even tens of thousands of dollars in interest.
To make a 15-year fixed-rate mortgage work, you’ll need a reliable income and enough money left after your monthly payment to cover expenses, savings and emergencies.
What is a 15-year mortgage?
A 15-year mortgage will be paid off completely in 15 years if you make all the payments on schedule. These mortgages typically have a fixed rate, which keeps the principal and interest rate the same for as long as you hold the mortgage. Your taxes and insurance costs can change, though.
Benefits of a 15-year mortgage
With a 15-year mortgage you’ll own your home much faster and pay less interest.
Build equity faster
A 15-year fixed-rate mortgage, with its lower interest rate and higher payment amount, builds home equity faster because you pay down the principal balance quicker.
Shorter path to full homeownership
Owning a home free and clear is a goal that burns bright for many people. What matters most to them is a feeling of safety from knowing that their home is fully paid off.
Lenders are exposed to fewer years of risk on a 15-year mortgage, so they charge a lower interest rate. Half as many years of payment also means you pay half as many years of interest. Let’s compare the principal and interest — not including homeowners insurance, property tax or private mortgage insurance — for a $250,000 mortgage with a 10% down payment:
- A 30-year fixed-rate mortgage at 3.61% has monthly payments of $1,024 and a total interest cost of $143,719.
- A 15-year fixed-rate mortgage at 3.13% has monthly payments of $1,568 and a total interest cost of $57,226.
That’s a savings of $86,493 if you kept the loans for their entire term.
Is a 15-year mortgage right for you?
A 15-year, fixed-rate mortgage is a great tool for borrowers who can afford the higher payments while still saving and investing for retirement. Paying off a mortgage gives many people a feeling of independence, safety and accomplishment.
But if your income is uncertain or variable, you may want to avoid the 15-year mortgage. Ask yourself: What would happen if the payments become too much? Do you have a realistic plan to cope, or would you stretch your finances too far?
Find out what your best options are by scheduling a free consultation with our Mortgage team. They are committed to getting you the best rate possible, keeping your closing costs low, and being your partner start to finish.